Firm Sorting and Spatial Inequality

Ilse Lindenlaub, Ryungha Oh and Michael Peters

No 30637, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the importance of spatial firm sorting for inequality both between and within local labor markets. We develop a novel model of spatial firm sorting, in which heterogeneous firms first choose a location and then hire workers in a frictional local labor market. Firms’ location choices are guided by a fundamental trade-off: Operating in productive locations increases output per worker, but sharing a labor market with other productive firms makes it hard to poach and retain workers, and hence limits firm size. We provide conditions under which there is positive firm sorting, with more productive firms settling in more productive locations. We show that positive firm sorting increases both the mean and the dispersion of wages in productive markets relative to less productive ones. The main mechanism is that firm sorting steepens the job ladder in productive places. We estimate our model using administrative data from Germany and identify firm sorting from a novel fact: Average local labor shares are lower in productive locations, which indicates a higher concentration of top firms with strong monopsony power. We infer that there is positive sorting of firms across space. Quantitatively, firm sorting can account for at least 16% of the spatial variation in mean wages and at least 38% of the variation in within-location wage dispersion.

JEL-codes: E20 E23 E24 E25 J30 J61 J63 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-bec, nep-eur, nep-geo, nep-lab and nep-ure
Note: EFG ITI LS
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.nber.org/papers/w30637.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:30637

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w30637

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().